Oops, sorry. Hey, welcome to our next session. Hi, Evan. Hey, really happy to have Ashim from UiPath here. Your world's expanding like crazy, you know? Like, do you still have time to sleep?
I still have time to sleep and hug my kids. Those are the two most important things.
A quick one, like, because you had reported numbers out last week. Maybe we start with, like, a quick summary on the numbers and then we take it from there.
Yeah, I think we were really pleased with our third quarter results. When you step back and you look at it, you know, we delivered, you know, we beat our numbers across the board for ARR, revenue, operating margin, and free cash flow. When we look at the quarter, we saw, you know, our ARR continued to be at 17% growth. We drive and run our business to ARR because of our 606 accounting. We saw positive movement in operating margin, really reflecting the outperformance or the, well, the good execution in terms of streamlining the organization. When you look at our core metrics, you know, net dollar expansion rate continues to be a strong point for us in terms of 113%. What was very encouraging, it was, you know, last quarter, we had crossed 300 customers greater than $1 million.
So if you put that in perspective, in 2019, you know, Raimo was just talking to me about 2019 questions. Back then we were less than 100 customers greater than a million dollars. So we had crossed 300 customers greater than a million dollars. And when you look at what we talked about for the total year, we continue to drive free cash flow at a high level, $325 million. So 17% ARR growth, revenue continuing to outperform even with the volatility of 606, and we and you know reflecting some of the fixes and execution that we've been working on, and really strong, strong progress in operating margins.
And then, so as we are on that kind of more kind of current subject, like, what do you see in terms of macro environment? Because that's the big debate, like, Salesforce sounded like a little bit better, but not 100% sure. There's. I also weave in post-election is like the question you're going to get today a lot.
Yeah.
Like, what's, yeah.
Well, we're post-election and pre.
Whatever.
Yeah, pre whatever that's going to be. So in, you know, from our perspective, I think we've described, we look at the environment as stable, and the way we've characterized the environment is variable, and it's a very deliberate word. I think there's pockets of strength and there's pockets of weakness, and they move. So on balance, we feel that to be a stable macroeconomic environment.
Okay, and then the elephant in the room for you guys is kind of, or that comes up a lot in my investor conversations, is like GenAI, so what's the role of UiPath in this new GenAI world, and I'm starting with, like, what's your message to the client? Like, I mean, like, first, maybe start differently. Does it come up as much of a discussion, in terms of how you fit in when you talk to clients versus investors? Because investors, there's a lot of, like, hot debates. How are clients thinking about it?
Clients are becoming more clear than investors, if I'm really candid about it. It's not an indictment on investors at all. I think it really reflects when you actually use the technology and put it to work, it becomes clear what is used for what. Because the word AI and GenAI are very broad terms. I would break down our strategy in terms of three key pillars. The first one, which is newer, is agentic. We are all in on agentic. What agentic for us means is giving agency to technology to complete the long tail of tasks within a workflow. There are deterministic tasks, things that are really rules-based and things that are non-deterministic, where it requires some level of thought or agency to be able to accomplish it.
UiPath's foundation has always been in the deterministic area, and that is very important for us. The agentic wave is really about taking a task and saying, don't just hit the approval for a discount. Decide whether you should be able to approve it, and so within GenAI, you know, agentic is a very core part, and we use GenAI, we use LLMs, we use context grounding, we use prompt engineering as ways of making sure that we can operationalize agentic within our platform. What is a very big differentiator for us, though, is agents use robots. They need to take action. You are not going to give an agent access or LLMs access or credentials into your systems of record or systems of reporting. So having the governance, having the deterministic element of robots and agents using robots is very important.
I mean, it does sound like it's a higher level than what people initially thought in their early thinking. It's like the debate that where it starts is like, dude, there's a Large Language Model. Sorry, I didn't know that all the time, dude. But like, there's a Large Language Model and that can just do exactly what a bot can do. So.
Yeah, it's a great question. Large Language Models, they are really great at gathering information, at synthesizing information or gathering information. And you can go and take Large Language Models and take very and deliver certain outcomes for it. But Large Language Models, you are not going to give Large Language Models access to your Wealth Management System. Ungoverned, right? So robots and agents use Large Language Models in very specific ways to be able to have outcomes that are there for enterprise processes. I think there was a question.
Just to be clear, it's important. You are using the Maxis VIA API.
No, there's two ways. Remember, our platform has UI automation, API automation, as well, right? So there's multiple ways to do it. The second piece is APIs are very highly governed in terms of where, how the structure of what that looks like compared to a Large Language Model that can go and take a decision and have access at the same time. So in our minds, when you go through, when you look at it, we have both pieces of technology depending on where it is. A lot of claims processing in highly regulated areas, they're actually going to look at things like APIs and even have higher governance standards. They would prefer to emulate what a human does via the user interface. So we have multiple avenues to go after that workflow.
Okay. And then, so if you think about, like, where are your, you said your customer understanding bit, like, what, what's your customer interaction, like, or what's the customer thinking in terms of adoption? Because you have, like, the Salesforce with Agentforce and et cetera that kind of, you know, market the heck out of this kind of segment.
Yeah, you're a machine.
Yeah, you're a machine. You're like, so how do you fit in then in a way? Like, what's your position?
So if you look at it, we, we definitely see every company doing in-app automation, just like they did with robots. There would be an automation bench within an Oracle, within an SAP. Where our sweet spot is, is large complex processes that span across applications. Let me give you some numbers to put some things in context. For us, when I look at, like, our top 50 customers, the average number of enterprise applications that they're dealing with is over 12,000. So their processes span multiple applications that are there, right? The second piece is when you look at, when you look at specific in-app, they are limited by their application itself. We, we call ourselves the Switzerland. So we are very open architecture. We can integrate with Agentforce and robots that, that agents that Salesforce is going to create for certain customer processes.
We can integrate with mainframe applications, and we can be the connective tissue that actually liaises both of those together, so from our standpoint, our niche is cross-application like Switzerland in terms of integration, across any number of processes. And there's two more important differentiators. We are really going across the entire workflow, so multiple areas of multiple steps, and so we believe that robots, humans, and agents all are required to complete that workflow, right?
And one of those portions of the workflow can be a customer, a customer-facing, a call center agent. Another one can be the accounting function to go and retrieve a receipt, right? And the last piece is governance. We believe orchestration, so agentic orchestration as we talk about it. And within our RPA platform, we had the Orchestrator. That is one of the most underlooked, and frankly undermarketed parts of our platform. It is an area where we've invested a lot of our engineering effort to drive governance, to drive scalability. And those are our differentiators versus a lot of the players that you'll see entering the scene.
So, is the idea then, in a way, that like an Agentforce will be on sales, you know, or like on call center and will do that and they do really well, that it's, you know, if you think corporate-wide, it's going to be broader.
It has to be.
Yeah, and then so, okay. So how does that, what does it mean to the competitive landscape then for you guys? Is that kind of then not straight into Microsoft, et cetera, or like sort of.
Yeah. So what you end up seeing, Raimo, is you actually end up seeing a lot of competitors on the fringe of different areas because they enter at different workflow points.
Yeah, exactly, yeah.
Right? So, but where we look at our competition is we are kind of an N equals 1 when it comes to going across the entire enterprise workflow. That is one of the reasons why in seven to eight years, we've scaled to 1.6 billion of ARR, right? When a lot of people would say, the same question came about RPA early on, oh, RPA is just screen scraping repackaged, right?
Yeah.
Screen scraping never developed into such a large monetized and governed and valued, valued piece of software. So that's kind of how we look at the competitive landscape. A lot of players on the fringe that we will meet and run into, but when it comes time to the transformation across an end-to-end workflow, we feel like we are very uniquely positioned.
You always said it, you will want to be the automation platform for a company.
We are the automation platform.
Okay.
Yes, for end-to-end automation for enterprise processes. And then from there, we have the ability to do in-app automation. We have the ability to do citizen automation, like Microsoft's Power, you know, Power Automate or Copilot-like features.
Yeah.
So that's why you see a lot of co-opetition. Like, we have a great partnership with Microsoft. They've stood on stage and talked about us as their preferred automation vendor. Because while we can do some things that they do, we do a lot of things that they do not want, they cannot do, and they do not want to do.
Yeah. I mean, on that note, Ashim, like that's the one thing where I still had confusion with a lot of investors. In a way, when you had your previous co-CEO, well, but still there, that was kind of the, you want to be the automation platform, but then when he left, there was, we want to be more nimbler and more smaller and want to be incremental. How does that fit together?
No, yes, that's a great question. What we meant is what our prior kind of leadership really drove, and I thought they did it, and it was a very positive thing, is driving the conversation to the C level in the boardroom. We want that. What we feel is in doing that, we created a lot of big company dynamics, and we lost sight of the grassroots citizen developer, right? The grassroots developer. Who is going to go and drive automation? It requires both a tops-down effort, but also a bottoms-up and a grassroots.
Yeah.
So being more nimble, we still have the same aspiration of being the overall automation platform, but we want to be more balanced between grassroots adoption and top-down transformation.
Okay. So how do you measure success then now as part of this, like, where would you see it, like, or how do you measure that?
I think three key places. The first is, for agentic in particular, the number of use cases that get put into production as we start moving through the next year in the areas of complexity that we see. We do look at it and say it should be a tailwind for larger customers. Our customers greater than $1 million, our customers greater than $100,000. We look at those cohorts of customers being ripe to expand their automation, to continue to expand their automation platform. To put it in context, customers between $100,000 and $1 million for us, their net dollar expansion rate is 119%.
Okay.
Right? We have over 2,200 customers that are greater than $100,000. So those are two key metrics that we look at, in terms of the success rate for them.
So then, in a way, like, if it works, then that 119 is like that, well, the law of large numbers brings it down a little bit, but it's kind of the num, if that goes up, it's kind of like.
That should be the driver of propelling growth.
Yeah, yeah.
Even if the law of large numbers creates a little bit of an offset.
Yeah, yeah, yeah. Okay, makes sense. Okay, we'll look for that. The one thing that you talked a lot about on the last earnings call, and it was something that I had kind of thought that should be interesting, covering SAP as well with testing.
Yes.
Like, that came up a little bit more than in previous quarters. Can you talk to that? Like, what's going on there?
Yeah, we, so testing is actually a very synergistic part of automation. Think about it. Every time you put a new feature or a new version of software, you have to go and run test scripts in order to make sure that processes don't change, applications are well managed, et cetera. Those scripts are emulating what a human does in human transactions. So we, what we did, what we started three to four years ago is taking our RPA platform and adapting it to testing, to application testing. We started very nascent. In the third quarter, we signed our largest deal with one of the largest tech providers in the world, one of the largest technology companies in the world. And the synergy is actually quite large.
It is not the most hottest, you know, most cutting-edge technology that gets spoken about, but it has immense value. Companies have thousands of testers. They spend millions of dollars. Especially as software moves forward, that is in a market that is ripe, you know, for disruption. The second piece is we're able to. Most of the technology incumbents are legacy. They have very old platforms, old architecture. Our architecture can bring in agentic. So agentic testing can be a part of what we do. We can bring in Copilot to Autopilot to be able to automate what those test scripts look like in those areas. That is, we're seeing traction there.
We see a lot of good, healthy demand from our customers, and that gives us an adjacent revenue stream, that is, you know, very productive for ourselves and for our customers.
Is that like, you didn't name, but like SAP, SAP moving to S/4HANA?
Yes.
That must be like a huge thing.
It's a huge, it's a huge area for us. Actually our partnership with Deloitte. Talking about SAP, we announced our SAP SOLEX partnership, right? That shows SAP's value of UiPath's platform. But the tangential benefit of that is GSIs really got to know UiPath at another level. Because obviously when you're one of the few SOLEX partners with SAP, you command that attention. Deloitte and us, we actually look and have formed a partnership to bring testing to S/4HANA migrations. The number of HANA migrations that are going to happen, S/4 migrations, that is a market, that is a set of use cases that is a real good TAM expansion for us.
Sorry, and it's, I apologize because it's actually an SAP question. It's like, so like, I think they have the deadline 2027.
Yes.
Where, by the time all the customers need to be over. So we're, you know, trying to do innings or, where are we on that journey? Like, because like in theory, that's been going on for a while and, you know, SAP's shares kind of keep acting well because of it, but.
Yeah. I think in the innings of a nine-inning game, I follow cricket these days.
Yeah, yeah, yeah.
But in a nine-inning baseball game, I would say we're probably in the third or fourth inning for it.
Still only, yeah.
Yeah. I mean, from, for UiPath.
Yeah, yeah.
In terms of where we are, I think the migrations have been happening, but now our platform has given us an area to speak to those customers, and that's an area that we can produce a lot of runs.
I mean, it's up to 20%. So that's like a multi-year story.
Exactly. And the reality is even post that, it's not a one-and-done thing.
Yeah, yeah.
People are going to continue to drive expansion across and implement new versions. Those are things that we can definitely do.
Yeah. And I had you on a lot, like as a CFO, like I, that was the COO hat, and that was the CFO hat for you. The you gave us an idea about growth next year, already. And it's Q3, so everyone was a little bit surprised, but you talked about stable net new ARR next year.
Yes.
Given all the uncertainty, while we're hoping it's getting better in the economy, but given all the uncertainty, people were like, okay, that's a, that's a statement. Like, what, what drove you to kind of.
I think I'll be very direct about it. I think the number one question for UiPath is, our scale is impressive. Actually, our core metrics are impressive. The question is, over the last three years, they've seen a deceleration of our net new ARR dollars in production. So when you sit in a conference like this, people are saying, great, what does that outlook look like? Especially as we're talking about some of the execution challenges that we, you know, had discussed and that we have put in place mitigating factors. So we wanted to be very clear that is based on what we see here today. We see that the efforts of our execution, the changes that Daniel is driving, the execution of our teams, we see net new ARR stabilizing.
And when you do the math on that and you look at the free cash flow, that is a profile of a comp in our minds that kind of shows you what is the potential financial equation or financial DNA of what the company entails.
I mean, if you and you know, there's a lot of guys that run models and numbers here. Stable net new ARR means that the year-over-year growth for ARR is still coming down.
Great question.
Yeah.
So, yeah, yeah. So look, at the end of it, you, we create a base case. So if you look at it stabilizing net new ARR, the dollars production, so if you say, you know, this year is the exact number now where consensus and everything's landed, 208 million of net new ARR, 210, whatever that could be. When you just go and you carry that forward, that still shows you a double-digit ARR story.
Yeah.
Right? I mean, I think that's a directional area. I don't, there are definitely a few companies that accelerate as they scale, but generally you do hit the law of large numbers at some point. And the question is, what is a good growth rate that investors can assume? And we feel like that gave, that allowed us to give some direction and show the confidence in the changes that we are trying to drive.
Yeah.
And along with that, acceleration of free cash flow. So we believe that we can stabilize those numbers. We are stabilizing those numbers, but having 85% gross margins, driving efficiency and driving discipline, we have scalability of our free cash flow margins, which is already generating $325 million this year. There's room to further accelerate.
And then how did you, like, in a way, because it's the, you know, you give me, you're giving me one number?
Yeah.
You know, net new ARR and like 280, 210, as you said, and but because you're only giving us one number, you could have given us like a 250 or 150, you know, so it's a level. How did you come up with that? Because the, you know, you were on the hook, and so we're going to turn to Ashim, not to Daniel, if that number doesn't come in. How did you get comfortable about that?
Yeah, I think the first thing is we did not provide a number specifically. I think that's really important. I think we provided contextual data and we said stabilizing. Right? And when I look, we've always said we guide to what's in front of us. I give context to what I see in front of us factually. When we're looking at various things, we analyze things three different ways: field sentiment, quantitative pipeline, and data science, like FP&A and the pipeline demographics and data science. When we look at those three dynamics and we look at kind of what our customer base is, you know, where we are today, we look at the trends that we're seeing in third and fourth quarter.
And then you add to that SOLEX being signed, agentic being signed, meaning agentic being launched, traction in test automation, our platform expanding, and we've given the customer examples of that, putting behind some of the streamlining of the organization behind us, right, as we move forward. Those are all things that, when you add up, we felt that that is an appropriate direction.
If you're like, how much of a, or how much extra visibility do you get from looking at the renewal pool in terms of thinking like?
It's actually a great visibility. And one of the things that we've really doubled down on in the last six to nine months, I think we were very quarterly focused, frankly, as a sales team and as a leadership team, which is appropriate. We've started taking longer, we've set up operating rhythms to start looking at our renewal cycle in a much more, longer view. What do the renewals look like in the second and third quarter next year? How are the customers adopting? What is the field sentiment? So when Daniel talks about customer centricity, that's not an empty corporate word. That is about, are we talking to the customers at the time of the transaction? Are we staying with those customers and getting feedback and really assessing what their trajectory is two, three, four, five quarters ahead of time?
Yeah, yeah. Okay. Okay. Shifting gear a little bit on the, you kind of adjusted the organization a little bit, over the summer. Like, can you speak to what was going on there?
Yeah, great question. When you were leaving in May and when Daniel came back into the organization, we really did a full assessment of go-to-market. And what we found is a lot of central organizations had been created. We created a structure that was more akin to a $100 billion company than a $1 billion company. You know, a $1.5 billion company, $2 billion company, $3 billion company in our minds. So there was a lot of centralized structures. Those centralized structures had two effects. One, you know, the further away you are from the field, ironically, salaries tend to increase. Okay? The more expensive it is. The second point is the more layers you have between the field, the slower you become, the less responsive. And so when you add those two things up, it just adds to inefficiency.
To give an example, we had an industry team that was central. The field did not find as much value from it. The field created their own industry teams. Now you have duplication and you don't have actually a really cohesive industry strategy. That's an example of some of the streamlining efforts that we did.
Is that a little bit like, and you know, like full disclosure, I've seen this before. If you take someone from a very large organization, they kind of do what they've seen before, but in a very large organization, that's kind of probably how you would do it. And then it's kind of you overbuild, compared to, because then you think you build and then you kind of fill it later, but then it never really works.
Yeah. I think directionally you're correct, Raimo, but I'd be careful. I don't think it's one person.
No, okay.
I think it's a we, and I think there was an over-rotation, and I think accepting, acknowledging a mistake, that's part of our culture, and then coming back and saying, let's how to fix it quickly, that's also what we do.
And then the one question I got is like a lot of like, how much disruption. Like if you think about it, there was like, you know, you've changed a little bit, you know, on Sales and Marketing. So then everyone is like nervous about like, how do we make numbers? Like how are the sellers going?
Yeah.
Et cetera. Like what was the impact there?
Look, when you're going through it, when you start it, you feel like this won't be too bad, you know, like there won't be disruption. When you're going through it, it feels like, oh my gosh, this is crazy, and then when you look back upon it, you feel like it's somewhere in between. It's appropriate. I think it was, there was a set of changes for the organization. I think what we executed well is we were clear, we were fast, we were principled. I think that mitigated things about where we, about that disruption. That being said, I think we're still in the process of stabilizing. Like we've talked about it, in this area that, you know, we've put a timeline like first quarter, you know, in terms of finishing streamlining the organization, and so we're continuing to move through it. I think is pretty well settled.
Our third quarter results, beating all of our metrics across the Board, making sure that even among this change, we were happy, you know, with that outcome, especially being able to continue to hold guidance in fourth quarter as well.
Yeah. And then how sustainable are those changes? Because like obviously you kind of peel back, pull back, but sometimes you kind of pull back to build up. Like I have to think about probably.
Yeah, it's a great question. Indeed, we are still investing in the company. It's just if you look at where our priorities for investment are, we are investing in the roles that are closest to the customer. So sales capacity with our quota carrying reps, right? That is an area that we will continue to look at to see where we invest. Within specialists, within our platform, test automation, process mining, those are areas that we can go and double down on. They provide much more tailwind and deal acceleration, both short and long- term, than some of the process-oriented organizations that sit centrally, and that is both on the G&A side and the Sales and Marketing.
Yeah. So when I don't know if you think about investment style. So if I put these two together, you give me like a number where I can kind of think about the growth profile for next year. We have the profitability. So would you kind of position, how do you think that positions you when you talk to investors? Like a GARP, more GARP-y type, growth guy? How do you think about that?
I kind of let the investors decide if I'm open. I think we provided the numbers where we are. Look, this is. I'll give you kind of the, if you step back and you say a customer that, a company that has scaled from $0 to $1.6 billion approaching $2 billion in a span of seven years, ARR is growing 17%, right? Revenue and 606 dynamics, you still feel like you have a path to double-digit revenue growth. Free cash flow is $325 million, 23% free cash flow margins, accelerating free cash flow margins, strong gross margin. An on-prem and a cloud business, and frankly, a platform that is, you know, very akin to the agentic and the AI wave that is there, and it has a very good product market fit. I feel like that can fit multiple investor speaks because that's just a rock solid, strong company.
I mean, and this last question for me is like, how do you then think about if you have the cash generation and you have good cash flow margins, how do you think about capital structure from here then? Or what do you do with the money?
Look, I think we have a very strong balance sheet, as you know.
Yeah.
We bought back nearly $500 million worth of stock over the last year. We reauthorized, or we increased, our authorization to another $500 million, you know, back this year. So that is definitely a lever that we'll continue to pull opportunistically. I think M&A is always on the table for us in terms of smaller tuck-in acquisitions, in terms of what's there. And then we have a lot of optionality that we will constantly consider, whether that's partnership, whether that's investment, companies like H that we invested in that gives us a five-year investment horizon as they're really on the cutting edge of combining LLM and user interface, and UI and screen automation. Like those are things that we have the ability to do.
Yeah. Okay. Perfect. Hey, Ashim, five seconds left. Wow.
Perfect timing.
Okay. Perfect. Thank you.
Thanks so much, Raimo.
Hey, good to see you again.
Thank you.
Thank you.